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In the Gig Economy, How to Minimize the Risks of Hiring More Freelance Talent

In the Gig Economy, How to Minimize the Risks of Hiring More Freelance Talent

Companies that embrace the Gig Economy – an alternative workforce made up of consultants, independent contractors, freelancers, and on-demand workers – have a competitive advantage over companies that don’t.

Businesses that are open to incorporating independent workers into their workforce are better positioned to recruit the talent they need, build a more productive workforce, and create a corporate culture focused on performance. They are less likely to have persistently unfilled positions, and more likely to secure the expertise and skills they need to execute their strategy.

Despite that, many companies avoid the Gig Economy because they believe hiring independent workers is risky. This second blog post in our series on The Gig Economy examines the most common risks companies worry about when hiring independent workers, and some suggestions for mitigating or eliminating them.

Will the Work Get Done (and Done Well)?

Companies that haven’t worked with independent workers often worry about how they will make sure the work actually gets completed, and is high quality. This can be a particular concern if the independent contractor is working remotely all or part of the time.

There are two common strategies for mitigating this risk. The first and most proactive is to review work samples from independent workers as part of the hiring process. This can be accomplished by either asking for prior samples of work -- a sanitized final report or deck, a sample analysis -- that is similar to the role you are hiring them for, or asking candidates to complete a short sample assignment as part of the interview process.

The second is to structure the work the way many managers do with full-time employees: with regular check-ins and deliverables, especially at the beginning. Break out the project to include frequent interim deliverables, such as summaries of early findings, submission of initial analyses, and outlines of final presentation decks or reports, to allow you to monitor progress and course correct for quality.

Of course, concerns about work quality are not limited to independent workers. Underperformance is a persistent problem among full-time employees. The difference is that underperformance among full-time employees is more costly. By the time you realize an employee isn’t producing good work, you’ve already invested in recruiting, onboarding, and training, and are facing the expense of ongoing performance management, or severance and potential legal risks in laying them off. With independent workers, you invest less in up-front costs, can identify underperformance sooner because the relationship is entirely focused on deliverables and results, and limit exit costs and time by simply terminating the contract. The Gig Economy won’t entirely eliminate the risk of underperformance, but it can reduce the time and costs of dealing with it.

Will our Institutional Knowledge Walk out the Door?

Corporate managers are concerned that independent workers will work on a project, and then leave, taking with them all the learnings and knowledge that would have remained at the company if a full-time employee did the project instead. The specific worry is that the continuity and growth of institutional knowledge will be disrupted by the coming and going of independent workers.

This risk is one of the easiest to mitigate by using widely available technology, and by implementing basic knowledge management practices in contracts with independent workers. First, the use of technology such as Slack and emails to retain conversations, Google docs to preserve documents drafts, a shared drive to host project sources and interim documents, and simple recordings of final project meetings or conference calls, can easily and cheaply preserve the work products and knowledge of any project.

While these technologies are widely available and low cost, the key is for companies to ensure their use by including basic knowledge management practices in contracts with independent workers. For example, the contract can specify which technologies the independent contractor should use in communicating and delivering work products, as well as include a standard waiver to permit recordings of meetings or conference calls for internal use. The contract can also specify a list of deliverables that must be received before the final payment is rendered. The list can include interim documents, source materials, and documentation to ensure that anyone at the company can both access and easily understand the project work and learnings.

The risk of institutional knowledge walking out the door is not specific to the Gig Economy. It already exists from normal employee turnover. The median tenure for employees is currently about 4 years, and only 3 years for those under age 34. Companies concerned about preserving knowledge internally are well served to implement standard technologies and knowledge management practices across their entire workforce, not just independent contractors.

Is there a Risk of Misclassification?

Our current labor market divides workers into employees or independent contractors, but the distinctions between the two categories are qualitative and subjective, and lack a clear, bright line test to determine worker status. The classification is also defined inconsistently across government organizations. The Department of Labor, IRS, Equal Employment Opportunity Commission (EEOC), and National Labor Relations Board each have their own unique, multi-factor, qualitative test to determine whether a worker is an employee or independent contractor.

The government’s unwillingness to introduce a single, objective test to classify workers shifts risk to companies who hire independent workers. One approach companies use to try and mitigate this risk is for HR, with advice from legal counsel, to create a company-wide strategy and process for hiring independent workers. This means developing standard contracts, required supporting documentation, uniform payment policies, and clear criteria for the appropriate management of independent workers. A second common approach companies use is to hire independent workers through a third party, such as a staffing firm, temporary agency, managed services provider, or labor platform to help minimize classification risk.

The Risk of Doing Nothing

The Gig Economy is growing, growing quickly, and here to stay. Companies that develop and implement a workforce strategy that incorporates independent workers will be more agile, flexible, and efficient, and are more likely to access the talent, expertise, and skills they need to outperform. Independent workers can help companies reduce persistently unfilled positions, build a more productive workforce, and create a corporate culture that focuses explicitly on performance.

The real risk is not that companies embrace the Gig Economy workforce, it’s that they ignore it.

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Diane Mulcahy is an Advisor to Aquent, the author of The Gig Economy (AMACOM, an imprint of Harper Collins) and a frequent consultant to Fortune 500 companies and startups on the Gig Economy and the future of work. Learn more at www.dianemulcahy.com.

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